John Billock

GLASS: This is May 4, 2001. We're in New York at HBO to interview John Kenney Billock, who's the president of the US Network Group for HBO. This oral history interview is being made possible by a gift from the Hauser Foundation as part of the Oral History Project for The Cable Center in Denver. John, thank you for meeting with us today.

BILLOCK: It's my pleasure, Elisabeth.

GLASS: Can you tell me where you were born and about your early years before you got into cable, about your education growing up?

BILLOCK: It was a sad, just kidding, story...I actually grew up in a small town outside of Pittsburgh called Latrobe, Pennsylvania, home of Arnold Palmer, although some people might argue that it's more famous progeny was Rolling Rock beer. I grew up there not really having any notion of moving back east, if you will, to the Eastern seaboard, and went to a small little school there called the Fourth Ward. This was not fancy stuff in Latrobe, and somewhere along my elementary education my parents moved to outside of New York City. I went to middle school there and then ended up going away to a boarding school in Connecticut in the mid to late '60s, well honestly, the mid-60s. From there I went on to Wesleyan University in Middletown, Connecticut, where I was a religion major. I had a great time and graduated in '71. I didn't have a clue as to what I was going to do with my life. I actually at one point toyed with going to divinity school, but I did the second best thing and opened up a Blues club with my brother north of Boston, which we ran for a couple of years. It was actually reasonably successful, surprisingly, since we didn't know anything about business. But I got it in my head that I didn't really want to be running a club and bar for the rest of my life, and a friend of mine convinced me to go to business school, which I did do, because I honestly had nothing better to do with my time. When I graduated from business school my first job was at Colgate-Palmolive, in classic consumer package goods marketing in New York City. I'm trying to think, I guess that was 1975 when I started at Colgate-Palmolive in the product management area, and at the time that I left Colgate I was running something called Palmolive liquid brand with "Madge the Manicurist." I got a call from a headhunter and they said, "Look, we've got an opportunity for you." In those days at least, I'm sure it's still pretty much the same, a lot of companies for whatever reason, were always calling us because we were in package goods and they felt we had this classic marketing background and again, as I said, many companies seemed to think they wanted that skill set. So I was used to getting these calls and I usually said, "No, I'm really happy at Colgate," because really I was happy at Colgate. But the recruiter said, "No, this is something very different. It's arguably kind of unusual. It's this company called Home Box Office." I said, "Yeah, what do they do?" He said, "Well, you can watch movies in your house, no commercials, no edits, you can get great prize fights, etc." I said, "Gee, who wouldn't want that?" I mean, it sounded like a good idea to me. That was my due diligence. So I took the interview and I met some folks at HBO, one of whom was Jerry Levin, who turned out to be not only one of my mentors in the early days, the late '70s, but one could argue had a reasonably good career at Time Warner and now AOL Time Warner. So somehow I came on board. I was convinced this was just a great idea. I actually took a salary cut to come here, literally based on the sheer power of the idea behind HBO.

GLASS: How old were you at that time? Mid 20s?

BILLOCK: In my late 20s, maybe 27-ish.

GLASS: If we can back up for one moment, when you graduated from business school and there was a world of opportunity for a young man at that point, in the mid-70s, what drove you to choose Colgate-Palmolive over say a career on Wall Street. Was there something in you that wanted to go into marketing?

BILLOCK: Well, actually in those times, believe it or not, in the mid-70s investment banking wasn't hot. It just wasn't a hot place to go. Interestingly, kind of ironically, what was hot then in the financial sectors was commercial banking – Citibank, Chase, Chemical, they were the financial institutions with the big MBA hiring programs and they had a history, if you will, of tapping into the MBA world, and I had looked at that. I just wasn't as interested in that. For whatever reason, I felt product management was the closest thing I could get to in a corporate world that had a little bit of general management/entrepreneurial dynamic to it because in product management you're really supposed to be the captain of the ship, as it were. You had to know marketing, classic marketing; you had to know financial controls because you were in charge of a brand's P&L; you had to know a lot of different functional skill sets, and that sort of just inherently appealed to me.

GLASS: You'd already proven your ability to do that when you were running your bar and club.

BILLOCK: Well, that's true. I had to learn a lot of skills in running that bar, but that's a whole other story. And also, I've got to admit, if the truth be known, I did meet a girl in Boston and she was coming to New York, so I said, "Well, I'll tell you one thing, I think I've always wanted to live in New York City." So I must say that was sort of a motivator at the time. But in any case, I came to HBO... one last ironic story to that because everything seems to come full circle. My boss at the time, who was the head of the Household Products division at Colgate-Palmolive, said to me, "You're going to HB-what?!" And I said, "It's HBO." And I said to him, interestingly, being the arrogant little 27 or 26 year old I was at the time, "You're going to know HBO someday even as you know CBS." I did say that to him; I don't know what made me think that, but I did say it to him. Now, ironically, 20 years later that man's name is Reuben Mark, he's the CEO of Colgate-Palmolive and interestingly, he's on the board of AOL Time Warner and has been for years. Whenever I see him we sort of smile and I say, "Well, what can I tell you?" He just smiles. He's done alright for himself as well. We sort of laugh about it, how it's come full circle.

GLASS: So you came to HBO in 1978 as a marketing manager?

BILLOCK: Yep.

GLASS: What was it like then? HBO was then five years old, and as you know, most people hadn't heard of it.

BILLOCK: Yeah, really when I got there, I think there were maybe 60 employees. I know we didn't make any money at that time, but it was really exciting. It was very sort of primitive when I got here. Remember, I came from wingtip shoes and Colgate-Palmolive, and I get here and all of the sudden they say, "What are we doing?" And basically it was in a sort of whatever it takes to get the job done kind of mentality. I came into a very interesting part of the company. It played to my background, my professional background – we would go from market to market, and I mean small towns, this isn't major markets, and launch HBO in Greenville, Texas or Thibodeaux, Louisiana, or some small town in upstate New York. We literally went on the road, a group of us, with a bag full of ad mats and radio cassettes and direct mail templates, and we'd go and meet with the system general manager and plan the launch of HBO, buy the newspaper ads locally, get the radio ads bought locally, launch the thing, and then move on to the next market. So, we were a bunch of merry pranksters running around America, launching HBO, moving on to the next market. It was taking off. It was actually a product, which my initial instincts I think were reasonably correct, that people said, "Well, this is a good idea. Who wouldn't want to watch a movie in their house?"

GLASS: So you had come from Colgate where you were marketing soap and traditional products that people had been using for hundreds of years. So now you have a brand new product that no one's ever heard of that is completely new to the market; no one had ever had a pay TV uninterrupted movie service. Did you have to change your thinking in how to approach the marketing for this product?

BILLOCK: Well, I think the hardest part for me in the incipient stages of my employment at HBO was it was very unsophisticated because I was really used to running these big national network television campaigns, national promotions, and so on and so forth. Here it was very grassroots, so when you did a marketing campaign you'd walk into the Daily Post Gazette of "Anywhere" America, buy the ad, walk down the street to the radio station... it was a little more hands on than I'd been used to in the packaged goods world. Pretty exciting though, because the beauty of this was, for me at least, it was sort of an immediate gratification, you would go into a market, launch it and either you got subscribers or you didn't. But you knew the precincts were being tallied very quickly and it was just sort of an exciting time. Also, to the extent that it was a new category launch, let alone a new product launch, it made for a challenge from a marketing point of view, a communications point of view. But, remember the premise of HBO was that you were taking assets which were already known to the marketplace, call it Jaws if you will, a movie big in those days, and said, "How'd you like to watch Jaws in your home?" I think what people forget is when we all started really rolling HBO out across America and it wasn't ever heard of, there was no VCR in those days, so the only way you could watch a movie uninterrupted and without commercials was to get HBO. It was literally the only opportunity or option to get an unedited movie. So it was really a very powerful packaging concept as much as it was a programming concept. It was a delivery system, if you will, leveraging off of already high demand programming.

GLASS: So by 1979, you were the manager of new market development, and then by later in the same year you became Director of HBO marketing, responsible for developing HBO advertising and promotion. There's a very rapid rise there; did you find that among all your fellow HBO managers at the time, tremendous growth personally?

BILLOCK: Well, yeah, I'd like to think that I was just really this highly gifted person, but again, if the truth be known, we were really in such a high growth mode, and we honestly, it sounds like a cliché, but it is true, sometimes it's much harder to manage growth than it is to manage sort of sustained stability, if you will. I think what was going on then, if one were prepared to sort of rise to the occasion and just sort of work a little bit harder, not even from an ambition point of view but because honestly the job needed to get done. It was exciting; I mean it was infectious around here. There were a lot of people whose careers were moving arguably very fast relative to other industry norms in terms of moving up the food chain organizationally, but it was really just people filling in the vacuum that was created by the unbelievable demand for the product in the marketplace, so it was really just a very interesting time. People tended to work very hard and play very hard in those days at HBO. It was sort of like the dot.com fever in the late '90s, if you will. Hopefully our business model is a little more... seemingly it's been a little more sustainable as history has proven, at least to date. I would say that my career path, and maybe I've been very lucky, and this isn't false modesty, I truly understand that I've been lucky along the way, I think I've made a little bit of my own luck, but it was really the business that I decided... the smartest thing I did was to decide to come to HBO based on the power of the idea behind HBO, and I think others that got here then kind of reaped those same types of rewards, if they were willing to go after it.

GLASS: In those early years Jerry Levin was here. Was Michael Fuchs here then?

BILLOCK: Michael was here. He was not running the company; he was sort of off buying then what we called HBO specials, like a Red Foxx stand-up show, or something like that. In fact, in those days, original programming was not very profile; we were really driving the business down the backs of theatrical product as well as some rather extraordinary prize fights we were getting, the Thrilla from Manila being an obvious one, but Michael was here. In those days, Jerry and Nick Nicholas were really at the helm of HBO, then they created a video group and they went up there, and Jim Heyworth came in for awhile, and then Frank Biondi was the CEO of HBO for awhile, again in the early '80s and then he left and Michael came in and basically served out the '80s as HBO's CEO.

GLASS: Do you think that HBO, because it was a brand new product and there was an excitement about it, attracted a certain type of executive with an entrepreneurial spirit?

BILLOCK: Yes, I do. I do to a degree. Now, again, we were coming from all sorts of different backgrounds. We were hiring some people from banking, some people with more classic marketing backgrounds like myself, and then eventually, honestly by 1980 we even became, God forbid, one of those aggressive MBA hirers where we'd go on campus. By then we had developed a bit of a brand buzz so it was a fairly popular place to come because people said, "Holy cow, this company has a real business model, seems to be a hot product, and I think it's a lot more fun maybe than adding and subtracting numbers, I don't know." So we had a sort of inherent advantage in recruitment in those days, so we did have a lot of young people. I think our median age then, and I'm not exaggerating, was maybe 29. You were in your 30s and you were "Whew!" You really got old fast, didn't you? So there was a real dynamic here. Little did I know, but I'd love to be there now – in my 30s, that is.

GLASS: In the late '70s, based on the success of HBO, of course you had your first competitor come into the market, which was Showtime. Can you talk about that?

BILLOCK: Well, again, I think it bothered some of the people who had come to HBO prior to me more than it did me because, remember, I grew up in the package goods world. I was at Colgate-Palmolive and we were always getting pummeled by Proctor and Gamble and sometimes Lever Brothers, so the only thing I ever knew growing up from a marketing point of view was fierce competition and sort of market share battles, if you will. So if anything, I sort of looked at it as, oh, now we get to have some fun because now we get to compete, not just against the market, but against competitors in the market. But it changed things. I think it made our affiliate sales group even more aggressive. Our people became super-juiced, super-motivated, and even attacked the market place more aggressively to consummate HBO distribution agreements in all the cable systems. So if anything, having Showtime enter the marketplace in the late '70s, I think, really sped up the competitive environment and therefore the development of pay television, of premium television, in America, and really, in an indirect way, forced the cable industry to become much more aggressive marketers themselves because we were putting more marketing dollars into the marketplace, and I think it helped them, to a large degree, penetrate their markets more deeply. So again, it shouldn't be surprising, given the heritage or the legacy of America, but in a competitive marketplace... everybody was a winner, including HBO. We weren't a loser because we had to compete; I think it made us better. The pie expanded exponentially because we were all putting more human, and frankly, financial or capital resources against the market, and things took off. That's actually really when the hockey stick on the growth curve really started, we started hitting the handle and the slope of the curve became rather extraordinary.

GLASS: Is that around the time that HBO began to get into original programming as well to counteract the competition from the outside and show a difference?

BILLOCK: Well, yes. There was an overlap in timing, but HBO was sort of committed, albeit with toe in water first, to develop some of its own original programming. Again as you mentioned earlier, Michael Fuchs was here; he was really brought in to do that. There's not doubt that we stepped it up, and I think, quite honestly, yes, having a competitor really helped us, but the most important competitor, interestingly, which really got us highly focused to ramp up our original programming output was the VCR, not Showtime.

GLASS: That was 1984.

BILLOCK: Well, the VCR was a little bit before then, but it was trickling in and all of the sudden it also had this rapidly fast household adoption rate in America, but when we saw the takeoff of the VCR and then coming up to that video rental stores, you know, ostensibly this was going to be the death of HBO because now people could go to a store, pick out any movie they want, play it whenever they want, pause it, whatever. And again, as I said, it was ostensibly the death of HBO and every other pay TV network. So one of the things we did, amongst other things, but one of the things we did was really step up our original programming output so that obviously part of our product promise to our customers was that we will show you things that you can't see anywhere else, including the home video store, and that's really when you saw the earnest up-tick in what we call OP, or original programming, development at HBO.

GLASS: Around that time the VCR started to affect the marketplace, there was also for the first time in HBO's history some layoffs. HBO had hit a wall in terms of market penetration. Was that the first indication that the market was maturing, and can you talk about that and some of the challenges inherent in getting through the wall?

BILLOCK: It was an interesting time thinking back on it now, because you can almost think back on it a bit nostalgically, but at the time it was sort of "Oh my God!" The VCR is upon us, every American seemed hell bent on owning one and using one. Does this per se obviate the need for an HBO? Are we being technologically bypassed, if you will, in which case, oops, we've got a problem. I mean that was sort of the... there was a moment of that within the walls of HBO. Now, we didn't talk about it and go around pounding our chests everyday, but there was quiet sort of, let's just call it anxiousness, at HBO. I presume some of that was going on at Showtime as well, I don't know, just saying, "Have we plateaued? Indeed, have we not only plateaued, is this maybe the beginning of not such a good trend line?" This is, remember, coming off this sort of ebullient ride up where we thought we were Captains Courageous of America because we were building this great industry. But you know, again, like anything else, and it's the same thing as I said earlier when Showtime came on the scene, I think it made us better. Eventually we looked ourselves in the eyes and said, "We are in an actual slowdown; there is not doubt about it. We're not growing at the same rates." We can't give the growth rates to our parent. It's not good for Wall Street either, you know, high growth rates for high multiples, and we did have a staff cutback because we were hiring so fast to keep up with the growth that we probably started to get ahead of the growth in anticipation of future growth, and then we had to put the breaks on, literally, overnight, and we had this overhang of human resources and that was sort of the first time in my career at HBO – and I guess I had been there for six years at that point, something like that – that a little bit of the fun sort of seeped out, if you will, but again, it was something we had to do and we did have a staff reduction here, a "reduction in force" is the euphemism. We started to create a cost structure that we can live with, now given our current size, and went about strategically redefining and rebuilding the brand momentum that we lost in the mid-80s. And as you pointed out, we did up-tick our original programming, but I think one of the most bodacious moves we made then, which took everybody by surprise, including probably Showtime, we increased our marketing investment at a time when, again, people think, "Well, gee, they're not going to do anything. They're going to pull back." But we felt – and maybe this was a group of us, remember my DNA is so heavily steeped in marketing and I actually do believe in it as a business driver – and we really just jumped on the market with direct marketing, a very aggressive focus then in those days on retail marketing programs. We created this thing called the Time Lock promotion, which was no more than just a name we threw up, but it was just a series of three to four multi-tactic integrated campaigns of mail, newspaper, television, all basically direct response in nature, and just driving and asking for the order. We would unleash these on the industry, customized to each local system, and it was a miracle. It worked. We started to see all of a sudden, holy cow, during a promotion we'd gain an extra 50,000 or 100,000 subscribers. We said, "Well, this is sort of neat. Let's do it again." And then we kept doing it and doing it, and then we kept enrolling hundreds of thousands of subscribers again, and then it started to feed on itself and the rest is sort of history. I think we have programming in our blood here, I think we have marketing in our blood; in terms of we do believe in creating primary brand demand. We do it with our programming and we do it with our marketing activity and investments, so at least to date it seems to be working. I mean, you need a lot of luck along the way; I've got to tell you. I think we've been fairly lucky in some of our market successes. Again, hopefully you make them, but I think at least we're willing to take a shot at HBO. We do have a culture here where you really honestly have permission to fail. As a matter of fact, people that don't fail you sort of wonder about because they're not stretching and you sort of say, "Gee, if you don't mess up a few times in your career you're playing this far too safely." I think it's sort of helped us culturally and it's helped keep us a little bit fresh because those of us who were the "merry pranksters" in the late '70s, now we're sadly, deeply mired in middle age, and I mean deeply mired, and you want to think of yourself as sort of a young hipster still, but the fact of the matter is we've got to make room here for younger people with younger ideas and younger, frankly, points of view. That's part of reinventing HBO. I think if you said, right now, okay, it's 2001, what's one of the important dynamics at HBO, I would have to say that we are highly aware of the need to bring in young talent, both on the programming as well as the business side of HBO and really start to infuse that historical and cultural point of view into the product and into the running of the company.

GLASS: A moment ago you were talking about reinventing HBO. In the period, I believe it was 1979, HBO was reinvented as Cinemax. Can you talk about the development of Cinemax, what led to the creation, and how that also presented any marketing challenges?

BILLOCK: Cinemax came about, really, from a market dynamic more than anything else. When I first got to HBO, either HBO was in the market or Showtime was in the market. An operator never sold more than one product. One of my first tasks when I came here, interestingly, was I was sent to Thibodeaux, Louisiana, which is a small little town in Lafourche Parish – I don't know, it must be 60-70 miles west of New Orleans, to give you an idea – and so I went there and it was the first launch in the history of the cable television industry, the simultaneous launch of HBO and Showtime, and everybody was in a tizzy in New York saying, "Oh my God, I can't believe it. We're going to have to compete in market now." Given my background, that I had come from the package goods world, Jerry Levin sent me down there and said – I remember what he said, I know this is going to be preserved on tape forever – he said, "Don't come back a loser." I'm thinking, "Oh God, this is a little different than I had counted on." So anyway, I went down there and we launched simultaneously and it was actually getting a lot of trade press at the time, and a miracle of all miracles happened. Not only were we successful, HBO was very successful in that market launch, but lo and behold, so was Showtime. What had happened was, and nobody had any idea, was the consumers weren't picking between HBO and Showtime, they were picking both. They were saying, "Well, I'll take both of them. Give me the fries with the burger. Thank you very much." So when we came back, and we might have been slow, but we finally figured it out and said, "Wait a minute, gee, as opposed to just competing against Showtime, why don't we create another network, since consumers are willing to buy both, they're not cannibalizing each other, and let's compete against ourselves." It was a classic line extension, portfolio approach to product marketing, so we came up with a product called Cinemax, which was 100% movie based. Remember, HBO had the fights and the original programming sort of interspersed or co-mingled with the theatrical. Cinemax was going to be a pure movie lovers' network in positioning play in the marketplace. So that's really why HBO launched Cinemax, and again, not surprisingly, what we found was that in fact, yes, consumers wanted more than one pay television service in their home. They wanted choice and they were willing to pay for it. Today, Cinemax is in 11, 12 million households in the U.S. It's the second largest brand in America, second to HBO; it's neck and neck with Showtime right now. It's a several hundred millions of dollars a year piece of business for us, and the cable industry at large, so it's turned out to be a very interesting business model to have more than one pay TV service for us, but more importantly it was a real testimony that consumers valued choice and were willing to pay for it.

GLASS: So from that period, you now had two services, you had competition in the market; you had Showtime and Showtime also launched the Movie Channel.

BILLOCK: Well, they didn't really launch it; they acquired it with an acquisition with Warner Communications and then just managed both post-acquisition.

GLASS: So, we're in the '80s. You have successfully been managing the channels and continuing to grow the channels in a very competitive marketplace when a lot of the distribution had already been saturated. We know in the early '90s digital came, and we'll get to that in a minute, but how did you navigate the marketing and the distribution of the channel through the late '80s? Was it C-band growth at that time?

BILLOCK: We did get C-band growth and it was in the hundreds and hundreds of thousands of units, so it was not immaterial to our business, so actually it was a really nice coming out of that mid-80s "oh my God, we've hit the wall" dynamic. It was a really nice growth catalyst for us, and also it was a great mood changer internally, which was important from a cultural, organizational point of view. But again, as I said, we were getting a lot of the growth by just really getting much more aggressive from a marketing posture point of view. We really went after the marketplace. At that time, we were spending, I think, 6, 7, 8 per cent advertising to sales ratios, and then maybe another few points in terms of direct marketing to sales ratios, which at that time, relative to industry standards, was an inordinately high financial commitment to marketing. We were doing national ad campaigns and local retail ad campaigns. I think it was really a combination of all that stuff which was driving our market penetrations. Yes, we had a new distribution platform called C-band, but we also had, as I said, this very focused and aggressive marketing posture.

GLASS: Were there any other challenges in the '80s that you remember?

BILLOCK: First of all, our competition was... we were always aware of home video as a competitor; but we were always aware of Showtime as a more obvious competitor. But basic cable was very popular then with our distributors, with the cable operators. One of our competitors, if you will, was the cable operator's focus on basic. I mean, they really were saying we have higher margins on basic cable and that's where we're going to focus our market energies. And by the way, from their point of view that was highly understandable. But we did feel that dynamic, which was one of the reasons we stepped into the marketing breech. We didn't do it just because we're just a magnanimous group of folks here; we said, "Gee, if we don't lead the marketing charge for this category, for the premium television category, it's not going to get done." Because, understandably, the distributors have a different prioritization scheme than we do. I mean it's not that they didn't win if they sold HBO or Showtime, they made more money, but frankly there were more absolute dollars in selling another basic household. It's always been a balancing act for the premium television networks to be a relevant marketing partner with the cable folks, and also to create the most demanded brand within the category against our other premium channel. So it was always sort of three-dimensional chess for us in the marketplace. And those are always challenges. I've always felt that it's a great business, but quite honestly, it's an unforgiving business. You really can't sit back and presume the business is coming in. It will not happen and does not happen that way. You have to constantly pound the market with a programming message, an offering. You have to pound the market with classic retail marketing activities, and again, it's endless because if you stop marketing even for a month you literally can see it show up on your subscriber tallies the next month.

GLASS: Right. So let's talk about churn for a moment because that is a monthly problem you had to deal with where people would move away or for one reason or another they would cancel their subscription. How did you get them back?

BILLOCK: Well, a lot of the so-called churn, I think, which people have to remember, is people that were moving and then reconnecting, but if you move from one house to another or across the town or city from one apartment building to another that was considered a disconnect and a reconnect, but the industry never really tracked it that well. It was just because they were moving outside of their own systems and the databases frankly weren't that robust so it was hard to track. What we had to do was keep reminding people that HBO was worth subscribing to. That's another reason why we put such an emphasis on our programming vitality, get the most movies, promote them aggressively, make, hopefully, the best original shows, constantly give consumers a reason to re-subscribe, if in fact they were formers, or just give new subscribers in the marketplace a chance to say, "All right, now it's worth taking a shot at." I mean, we've done a lot of classic sort of tactics: "Save a customer" programs, and incentive programs, win-back programs – we've done all those things out here, and I'm not saying they don't work, I'm just saying that those are sort of tactical responses to almost a structural issue, and at the end of the day I for one think that having a brand that is vital and very relevant, very contemporary and sort of has what we call a real buzz going for it is the most powerful retention tactic you can have. We have a show, as you know, called The Sopranos, and it's episodic, it's a series. Sex and the City is another example, and we have several other series now. If you can get your customer base tied into sequential programming or episodic programming, give them a reason to come back week after week, that's really much more powerful than a coupon, "Save a dollar if you spend an extra month on HBO" or whatever the promotion de jour was, because if the product isn't good enough in and of itself to maintain a customer loyalty, it's very hard for me to grasp the notion that some relatively marginal promotional inducements will in fact create that bond with your customers, with your consumers. So, HBO, as a marketing strategy, as much as a programming strategy, is fully committed to series programming. That's a nuance. We didn't get there just because we thought, well, this is just a programming strategy. It was the ultimate confluence of the marketing side and the programming side of the business where we looked at each other and said, "Look, we really need to get into this form of programming for business reasons." By the way, America seems to like it anyway because they like to follow characters and get to know characters. Tony Soprano or Carrie, or whomever, these are people that a lot of Americans can't wait to see each weekend. They look forward to it and I think that's important from a marketing point of view, not just a programming point of view.

GLASS: You're right. In the early '90s, HBO was very innovative in another marketing area, and that was multiplexing. Do you think the multiplexing of the channels was driven by a need to expand the market?

BILLOCK: Yes, I can remember it very distinctly because I remember how it happened. Our engineers came in one day and said, "Gee, you know, we can compress our signals with digital technology and it can be a much more efficient way to distribute HBO where you don't need as many transponders, satellite transponders, to get to the headends." I can remember, I said, "Well, let's interesting. Thanks. It might be more efficient." But it's funny (I mean I remember it in my office because this is how we got there,) they all left and I was sitting there and I said, "You know what? If we get one signal out of one transponder, and we have plenty of transponders now, you mean to tell me I could do three..." I think at the time they were doing three to one compression ratios, maybe four to one, but I think it was just three to one, that was sort of the state of the algorithms if you will. I said, "Out of the same transponder..." I was just sitting in my office thinking why don't we multiplex? Forget about more efficient delivery of HBO around the country, why don't we just multiplex the same transponder to the same headend only now they can get three services because again, it got back to that primary market research. Why are people disconnecting HBO? It wasn't any breakthrough thinking, it was "there's never anything on HBO to watch when I want to watch it", or "they repeat their movies too many times". That was an all too oft mentioned criticism of HBO, "nothing's on when I want to watch". I said, "Well, gee, if we can do this that means they've got three times the chances of finding something they would like to watch at 8:00." It was not a heavily researched idea other than that, it was just a gut instinct because I can remember coming into a staff meeting at HBO and I said, "Look, we're going to start doing something called multiplexing," and really they thought I was just... take this guy out, it's time for him to move on, get him the gold chain, get him whatever you can get him, but get him out of here. I think that was '90, when we first started talking about it, or maybe '91. I can remember Michael Fuchs thought it was, frankly, again for posterity, said, "Well, that's just a stupid idea." I said, "I don't think so. We're not going to charge them for it. It's just like putting the bleach in the detergent. Let's put some softener in it too and you've got a better detergent."

GLASS: Added value.

BILLOCK: Exactly. So we started going out and then there was still some real estate, some channel capacity available. Lo and behold, we launched multiplex, it works. Consumers say, "Well, this is great. You mean to tell me I've got three channels of HBO for the price of one?" "Yeah." "And you're not charging me?" "Yeah." "Well, you're good guys, and by the way, I'm watching you more." That's what happened. Our affiliates, many of them jumped on it, used it to market and drive the HBO business. As you know, this was still pre-K-band, high powered dish guys. So being the first guys into the marketplace, the cable industry were the first folks in the marketplace with this multiple channel configuration. I think maybe a year or two after that Showtime followed suit, and then eventually Starz Encore came on the scene, really premised the whole company based on this multiplexing or compression driven product model. But I must say, I think at the time for us, it was just this constant drive to make ourselves better.

GLASS: So it clearly helped the retention at that moment for HBO?

BILLOCK: Well, it actually helped the acquisition more than the retention, interestingly. We thought, again, presumably, people will disconnect us at a far lower rate because they'll be using us more and therefore be happier with the product and it would improve our subscriber life, if you will. In fact, what happened in the marketplace, the most dramatic thing was more and more people were saying this is great, three for one is a better value, now it's worth finally buying HBO.

GLASS: Well, at this time we're in the early '90s, so you had this multiplexing brainstorm, which has not only helped HBO but also was being copied by other networks out there. We haven't really hit digital satellite years yet, but within HBO you were now responsible for not only the sales and marketing, but creative services and on-air. Can you talk about your views of how that helps the channel – the creative marketing and on-air promotion?

BILLOCK: Well, I've got to say the promotions in between the programming have always been sort of a hallmark of HBO's. I can say this because, yes, I'm organizationally responsible for that area, but I'm not the one that creates any of it, so I can really compliment those folks. Our on-air programming, I really do think it's sort of the gold standard of the entire television world, very well written, very well produced; it's an important part of creating the HBO look and feel. It establishes the stitching that helps manage the relationship of HBO, the network, with our subscriber base. There's an emotional connectivity with our on-air, and that's what it aims to do. It doesn't look like commercial television, not just because it doesn't have commercials, but I mean even commercial television's programming promotional activity. Ours can be highly irreverent; I think it's always clever; it can be very emotional in its tone. We're not beholden to 30-second or 15-second ideas. We can go all over the lot. We take as much time as we need to create the creative and emotional linkage between our product and our customers, and that's a real structural advantage, I think, that we have. It's so important to us. We have behind the scenes programming modules now. I mean they're really quite interesting. It's legitimate programming in and of itself; it's not just promotional noise, if you will.

GLASS: Does it set HBO apart from the rest of the pack?

BILLOCK: Well, as you might guess, people have been quick to follow our lead. It sounds a little arrogant, I don't mean to make it sound that way, but I think we've been the most aggressive in that area. Flattery, I guess, is always manifested in imitation, but we just keep on... I think our attitude is just keep on focusing on how to make our product look good and create that linkage, emotional linkage, with our customers. That's really what forces those folks to keep on doing new and interesting things. I mean, we're never going to be the only ones doing something. We can't be motivated just by being different. We do get motivated by being the best at what we do, as well.

GLASS: HBO has a brilliant log line, "It's not TV, it's HBO." Can you talk about how that came into being?

BILLOCK: I'll probably get the years wrong, but it was sometime in the mid-90s. We were on a pretty aggressive creative search with our agency, BBDO, our general agency, to really make a full commitment to HBO as a brand in America. You know, most networks... people don't watch networks; they watch shows, which is true. Being a premium, however, people have to make discreet purchase decisions to buy us, so yes, we're a network, but we're sort of also a consumer product, and it was getting increasingly hard to differentiate ourselves in the marketplace. You know, it's the land of 500 channels, everybody claims they have the same programming attributions as everybody else. I mean, there was just a lot of noise in the marketplace and an extraordinarily fragmented cable dial. With the agency, and I give them full credit for this, because they came up with this line, they said, "Well you know, the difference is you're not TV, you're HBO, for God's sake." It was almost like we were having an argument or something, we were all frustrated. "You're not TV, you're HBO, damn it, doesn't everybody know that?" Interestingly, everybody just said, "Oh my God! That is our positioning. It must be our positioning. By the way, it's our programming credo."

GLASS: It really matches the channel. It's brilliant.

BILLOCK: I am not making this up – this morning, May 4, 2001, I'm coming in on the commuter train, and some gentleman said something to me on the train, and I said, "Hi." I didn't recognize him, but he apparently knew me and knew that I worked at HBO. We were walking down the street (I was on my way to the office) and we happened to be going in the same direction. He said, "I want to say something. You really are – you're not TV, you're HBO, and you know, TV sucks." I said, "Well, I like certain network programming, I've got to admit." He said, "No, I'm telling you, your line is brilliant." So it's interesting that we are talking about it here today because it is a line that resonates in the marketplace, and again, this might sound a bit presumptuous and arrogant. At least we live by it here, if we don't always execute well behind it. I do believe not only does it resonate with our customers, I believe that HBO is the only network, literally, that could get away with saying it and have it be remotely believable with the consumers of America. I mean, we make programming, go places programmatically, long before others seem to want to go there. Now, it's true, again, imitation is the sincerest form of flattery, that we do have competitors, and by the way, I respect them, I even happen to like them as individuals, many of the people at our competing services, and you can see them, they're all following suit to be on this sort of cutting edge programming. I would just say that for HBO... it's in our DNA to be there. We don't want to be TV, we want to be HBO. I think that the creative community, interestingly, gets the line; it resonates with them. When David Chase or Tom Fontana or Darren Star or whoever comes with projects, they say, "Well, look. HBO is probably a pretty good idea for something we're trying to do, which quite frankly, will not and cannot be done by other networks."

GLASS: While you were talking about that, you brought up an interesting point, you said, "We have programming that can travel." One of the things that we haven't spoken of yet is another line extension, which is HBO International. Can you talk about when the decision was made to take the brand internationally and how it did?

BILLOCK: It's a complicated subject, but in a nutshell, the brand name, which interestingly, again, had some real cache outside our borders. Folks would come and visit us and study us and say, "HBO name is a very good name." We do live in a global village now, so people, with tourism, would see HBO in hotels or whatever, and say, "This is a very interesting product model." Anyway, it developed somewhat of an international profile. Now the fact of the matter is HBO did not have the rights to export its product beyond the United States borders, the movie rights from the studios. So the HBO that exists, say, in Asia, Eastern Europe, South America, that isn't the same HBO as you see in the States. From an ownership point of view it isn't the same. It is really a condominium almost of studios, who are owners; HBO is a minority share owner. We do have management... we have a management contract whereby we will brand it; we will create the on-air stitching, the packaging elements and the distribution and business side, and the management teams. Right now, every country basically has its own model, ownership model, and sometimes different owners because each studio is not the same from nation to nation in the partnering block. It's doing quite well. It doesn't have distribution in the UK, it doesn't have distribution in German, does not have distribution in France, in the Western European block, which would be arguably a very large, certainly from just a gross product level, GDP point of view, we're not there, but we are in some Eastern European countries. We have very robust business in South America and we're in Asia as well, so we'll see.

GLASS: The brand is so strong that it can stand up to all that international co-ownership.

BILLOCK: Well, it is kind of a tribute to the brand. I think it's also a tribute to the folks that we have running the networks for them because we developed a certain expertise here on how to schedule, which isn't all that obvious, scheduling these networks and multiple networks simultaneously to optimize viewer ship and satisfaction is not such an obvious task, and we're pretty good at it, as it turned out. That's sort of our role and what it's been. Again, for example, our South American operation is fully staffed internally by the ownership, the new company. They're very good at what they do, but not surprisingly there's a lot of to and from movement between North America and South America. Having the brands on both sides of the fulcrum has been a very powerful marketing tool for HBO domestically as well because a lot of folks are coming back and forth and it's just a great, sort of America's branding model right now. Something really quite interesting for us.

GLASS: Let's jump to 2001 for a moment. The census shows that the largest growing population here is the Hispanic population. You were just talking about the to-ing and from-ing between South America and North America; you've recently announced HBO Latino. Would you talk about that?

BILLOCK: The notion that there's a large Hispanic population in America obviously isn't new news in 2001. It is a sizeable population segment. Right now HBO has a very interesting demographic profile in its subscriber base. Approximately 20% of our subscribers are African-Americans; over 10% now are Hispanic. This has been going on for years, we have this very diverse user base, so again, and that's in our DNA as a company. We've had focused marketing efforts to those communities for years now. Our programming, we think, reflects certainly the African-American experience more than, say, traditional network television has. It's just much more part of the movies we make and the shows we make. There's no doubt, I think, that HBO needs to step up its activities in the Hispanic area, not only from just shows that are about the Hispanic experience in America, but also from a casting point of view, a talent point of view, in front of the camera, behind the camera. I think that that sensibility, no matter where it shows up, should start to be reflected more and more in our programming model. Why? Because that's what America is, and I think it will be very important to our success in the future. We did launch a product, HBO Latino. Interestingly, although not surprisingly, a lot of the Latinos in America today are bilingual and this is a product that is in Spanish. It's very youthful in tone. From a programmatic point of view, we tend to try to pick shows that are younger skewed. It recognizes the extraordinarily diverse nature of the Latino community in America. There isn't such a thing as just all Latino. We literally have on-air segments coming out of Miami, which has more of a Cuban, even Caribbean, feel. We have LA segments, which has more of the Mexican experience to it. New York, which is more Caribbean, I should say Dominican, Puerto Rican. And these are all different, legitimate sort of cultural nuances, Latino cultural nuances, and so HBO Latino hopefully reflects the diversity within the Latino community and it speaks to the young people, who obviously, predictably, have a lot of pride in their culture. And so hopefully it's a product which is trying to celebrate the full Latino culture.

GLASS: So for the last decade HBO has been running second audio feeds in Spanish, HBO en Espanol, so now you've crafted a whole new line extension with original programming and original on-air production for the channel as well, and you'll also have... Will it have The Sopranos en Espanol and movies?

BILLOCK: Yes.

GLASS: Congratulations. That should be very successful.

BILLOCK: Well, I think it will quite honestly. We never feel all that comfortable here at HBO. We're always sort of looking over our shoulders and always looking for the next opportunity, and that quite honestly is an area where I personally feel we have to step up our economic and strategic focus.

GLASS: That's part of the future of HBO?

BILLOCK: It can't be understated. It's a big part of our future, and shame on us if we don't do something about it. That's really what I think.

GLASS: Since Direct TV and Dish Network have come into being there's been a new growth opportunity for HBO and Cinemax to not only get into more homes, but also, due to digital compression, to start additional channels. You now have, I think, ten channels of HBO and I don't know how many channels of Cinemax. Can you talk about that and what it's meant?

BILLOCK: Well, obviously they're so totally interconnected because digital technology has allowed us to cost efficiently distribute multiple networks just through, as you said, compression technologies, which we started very early on, way back even prior to when the high powered satellite distribution model came on the scene. But again, not only does digital technology allow us to distribute efficiently, it allows, at the ground level, cable operators to get more out of the bandwidth they have in terms of channel delivery. Since the satellite dish folks are probably 100% digital they've, out of the gate, had more bandwidth and channel usage out of the bandwidth that they've had. So we kept saying, "Well, gee, if three is better than one, which it is, let's keep on going. Let's keep giving the consumer a better and better programming model, programming experience, product experience." And again, not for incremental charges, let's keep adding the ingredient level to the sauce. So digital technology for us, gave us an efficient distribution platform; it also gave our distributors an efficient distribution platform. They can offer the customer now, let's say, seven channels of HBO for the price of one. Well, yes, that's better than one channel of HBO, therefore you've got happier customers, the disconnect rates went down, the take rates went up and it was a win-win. That's really... you know, they've always been parallel pathing the notion of creating new channels with the technology. The technology in and of itself wasn't the product. The consumer didn't really care, but the technology allowed both the distributors and the network to create products and get them cost efficiently put into the customers' homes, and so it was just sort of a wonderful exploitation, if you will, of these technical advances. We just simply harnessed it from a product delivery point of view, and a product development point of view.

GLASS: And the subscribers are happy with it?

BILLOCK: I can tell you that we're obviously in the dish business because it's 100% pure digital and the cable industry now, in 2001, is fully engaged in digital rollouts, but it's a 15-20% factor. It's a 100% factor for the 15+ million high-powered dish households. Therefore we have many more HBO feeds in distribution there. Our disconnect rates in the dish world are significantly less, significantly less than they are in the cable world, and I think one of the real drivers of that differential is not surprisingly the fact that these customers have ten to fifteen feeds of HBO and Cinemax for the price of HBO and Cinemax.

BILLOCK: And Cinemax. Those are households, they aren't feeds. I'm not counting feeds they way some people do in this business.

GLASS: Yes, we know who you speak of.

BILLOCK: Why I don't know. It's such a silly metric.

GLASS: When digital deployment comes through cable, through Time Warner Cable, etc., do you think there will be another spurt of tremendous growth for HBO?

BILLOCK: I really do because it is fundamentally a better product. It really is a very good product. Digital cable is a fabulous product. It's obviously comparable to the high-powered dish product. In many respects it's a more robust platform for a lot of other reasons beyond just the delivery of television signals. Now, it's true that the earlier adopters of digital tend to be pay households anyway, so you could argue that it's a little early to tell what kind of a positive boost it will give HBO as the network becomes increasingly more digital in terms of the household distribution of digital boxes. So it's sort of a self selected audience. The people that love cable tend to be HBO subscribers already, and they tend to be the first people to step up for digital, so that there's a huge overlap, but having said that, as the technology takes on more and more household penetration on the digital cable platform, I think now the industry feels that it's a 40-50% digital play by, let's say, going out of 2004. I honestly believe it's going to be higher than that. I think that it will be... they can get it up into the 60s by then, but what do I know?

GLASS: A lot.

BILLOCK: I think it's such a compelling product, and the digital platform is more than just multiplexing. It is video on demand, it is subscription on demand, which is an HBO application, which we're literally going to launch in July of 2001, just in couple of months, the first U.S. deployment of a server based, on-demand HBO, which is going to be exciting. We don't know if we're going to stumble out of the gate or fly out of the gate, but at least the gate's going to open and we're going to figure this new, yet again another product enhancement to HBO. It's just sort of the next iteration of multiplexing. That's where we're heading right now in 2001. It's the ultimate plexing.

GLASS: Well, with the earlier plexings it's been added value and you haven't increased the subscription level. For SVOD will you be charging an extra fee for people to see that on top of their HBO bill?

BILLOCK: The business model now calls for an extra fee for this product model because it costs quite a bit incrementally to stage it. Now, it's going to be a very interesting product, though. For example, one will be able to see the entire season of one of our hot series, so if anybody's missed maybe the first two seasons of The Sopranos. So, whenever anybody wants to watch them, they're there. They can pause them, they can rewind them, the phone rings, no big deal. We'll be refreshing, merging and purging the servers almost daily, or at least weekly, so fresh movies will be brought in. It's like having your own home video store, plus your own video library off-premises, and for a pretty low incremental charge, I might add. So we think that's the model we're going with now.

GLASS: So your subscribers will have access to the HBO original programming that is currently being offered as well as up ahead?

BILLOCK: Well, we won't get ahead of what's being offered, but we will certainly look back, including this year's programming and maybe even last season's for people who say let's go crazy, let's watch eight episodes of Sex and the City tonight, for example. Let's have a party. I mean, whatever. It's a very powerful idea. The market research to date suggests that people really get it, and again this is going to be another very interesting marketing challenge for HBO because since it's never been done before, for good or for bad, we're going to be the first company to ever put this sort of product application into the marketplace, sort of the same way we were with multiplexing. So we'll see if we're smart enough and good enough and the product is compelling enough to drive business at a certain optimal price point, none of which we know today, I might add. I wouldn't sit here and pretend to tell you that I know where this is going.

GLASS: Technology has certainly driven HBO's growth throughout its 28 year history, from the time you first went up on satellite with the Thrilla in Manila through digital compression and satellite, etc. Now one of the new technologies that is being made available will be broadband and internet distribution. Do you think that will be a good avenue for HBO? Do you think the people will actually want to see television through their computer monitor?

BILLOCK: That's a good question. Well, again, first of all right now you're right. The way broadband would get it into the home is directly to the computer monitor, but if you take that thinking one step further and the zeroes and ones, if you will, that are coming in through a high-speed infrastructure like Road Runner or At Home can be and will probably be routed to another monitor, which is called the TV. So really, at the end of the day – this is ahead of the game a little bit, technically speaking, the Internet as it will be a distribution platform – but yes, I think it can and will work for, as they say, very K rich or video rich data movement. So, we'll see. I can tell you – do we think about the possibilities of using the worldwide web, if you will, to distribute HBO so some of our specials, like episodes of The Sopranos, the people that don't live in the States and can't see it, maybe, they can be kept up to date with The Sopranos and when they're living as ex-pats wherever? Do we think there is an interesting potential business opportunity with that kind of a product? Yes, we do. Are we there yet? No, obviously we're not from a technical point of view. But also, the internet right now, as it exists today, can be enhanced as a current, more traditional programming model. For example, we're populating our internet site, HBO.com, with really additive programming. For example, the site we have surrounding The Sopranos, a million people come to it a month to get a little deeper inside knowledge, we have parallel sub-plots going on, we have FBI Files, I mean, it's a fun experience.

GLASS: So enhanced programming.

BILLOCK: Yeah, and when you get into a broadband environment, that enhanced programming, frankly, the entertainment quotient is going to go up and we'll be able to do 30 frames a second, it will look good, it will sound good, it will be quick, it won't be herky jerky, and it will be a size certainly larger than a postage stamp. So I think we can have a lot of creative fun with it and we'll see where we're going to go with it. You know, I think it's going to present a lot of opportunities – broadband, specifically, and the internet, generally.

GLASS: The HBO interactive department, including the website, reports to you as part of your responsibility as President of the U.S. Network Group. Do you feel very strongly that that has helped to enhance the HBO experience for you viewers and do you find that there are a lot of your viewers coming there? Do you get a lot of hits?

BILLOCK: Well, we get a pretty good number of hits. We're not on par with the AOL family; their numbers are so spectacular, their unique visitors are so spectacular, they're in the tens and tens of millions every month. Ours is over a million, but we do have a million, for example, viewers that come back to it a lot. The page views are very aggressive per visit, so the people that do get into it get into it, and we just have to keep promoting it. It's growing all the time, it's catching on. Obviously, household penetration of internet penetration is quite high now in America. I guess it's... I think it's moving in on 60%, I could be a little ahead of the curve on that, but not much. So we're just going to have to keep on pounding that a little bit harder and get the people to the site. It's not enough just to be a dot.com now, and unfortunately that's where a lot of people have made mistakes from a business modeling point of view. We really have to put compelling programming on it. We have a show coming up in the fall of 2001, a mini-series produced with Steven Spielberg and Tom Hanks and it was adapted from a Stephen Ambrose novel called Band of Brothers. Well, I've seen the internet site, which obviously has been in development for quite a while in anticipation of the launch of the show. It's really quite spectacular; it's not only visually stunning, it's got a lot of functionality and some very fun things, interactive engagement opportunities for the people that go on site. Look, we're frankly learning how to use the internet better as a marketing platform and as a programming platform. I think people just have to stay tuned. I think what we have to realize is that to 15 year olds today, the internet is as obvious and friendly a platform as the TV is to most 35 year olds or 40 year olds. A 15 year old today ends up communicating more in chat rooms and instant messaging, e-mail, and things than they do on the telephone. They actually like to communicate on the internet. But that's a cultural dynamic. Now, I think we have to evolve with it programmatically vis-à-vis our interactive programming activities, and we will.

GLASS: To sum up, you've been here 23 years and you've worked with remarkable entrepreneurs who've helped to create HBO, you've seen some of them go on and create other wonderful franchises out in the entertainment industry as well. Do you have any stories or any memories that you'd want to record here? Funny stories or things that really struck you as important in HBO's history and your personal history with HBO?

BILLOCK: Well, I would just say that... again, there are those who are funnier than I am, but I've got to say what's most special to me about my 20+ years here at HBO, the great people at HBO. It's a place you actually like to come to work to. I mean it's like, gee, I like everybody here. It's not a political environment. It's just a great business and it's a fun business, but even more than that, I think, what's most special to me is the entire industry at large. We have had at HBO, historically, this event called the Super Bowl event where we go off with some of our major customers to some exotic locale and sort of celebrate the year and our business partnerships and just spend three or four days with our spouses and friends, industry friends, and you know, what's so interesting about that to me is that when you're there you're thinking these are people I like to hang out with – all ages, sizes, shapes, we're all there together. People, I think, genuinely like each other, sit around, whatever, just talking about this and that, about what's the strategic exigency of the day, or laughing back on an event that happened five years ago that we can all mutually remember.

GLASS: Can you speak about the symbiotic relationship between the cable operators and the networks?

BILLOCK: Yes, again, it's a pretty interesting industry that way, and I think, again arguably, unique. Yes, the networks have to sell to the cable guys, and of course we negotiate over carriage fees and marketing priorities, etc, etc., and that's business and everybody knows it's business. And by the way, these negotiations can be quite, shall I say, energized. You know what's interesting? After one of these rounds of negotiation you can say, "Hey, listen, it's over. It's 7:00, do you want to go get a beer?" And you go out and have a beer. And you know what? You like talking to that person because you like that person you're having the beer with. I think it's kind of unique. I honestly don't think that it's replicated in many other industries. All I can say, and I know that I'm not alone in sharing this feeling, this emotion, I am one lucky person. We could have been selling ingot molds for God's sake. This is fun, and it's real, and I think it helps the communities, and I think it does a lot of good, and yet we're having a ball and the people are decent. It's an unbelievable run that we've all been on. We have literally reshaped America with our media and medium. Most people do not get a chance like that in their lives to be part of almost a movement, if you will, and you know what? We all are a part of it and have been lucky enough to be a part of its ride up throughout the last 20-25 years, and it's been a gas. I really do feel like a fortunate guy. I could have been running a blues club, still. Actually I could have been a minister, which would have been fine, too.

GLASS: It's not too late.

BILLOCK: It's not too late except I'd have an awful lot of explaining to do to a higher authority. But it's been an extraordinary ride. I've got to say I'm grateful. I'm not quite sure who I'm grateful to, but I'm grateful. I just have that feeling about being at HBO and being part of the cable business.

GLASS: Well, thank you very much. I think HBO must be very grateful for all the guidance you've given the channel through a lot of challenges, and I'm sure there are more ahead of you, but it's been a phenomenal success.

BILLOCK: Well, we've had a good ride. We'll see if we're good enough, and quick enough, and smart enough to keep on the saddle, so to speak.